How are Treasury Bills Different from Fixed Deposits

Treasury bills were introduced in India way back in 1917, but their awareness among the common public is rather very low. Here’s an article for you which will brief you about the differences between the two modes of investments and how T-bills can also serve as a potential mode of investment under certain conditions.

Treasury bills are bills that are released by the Government to the common public in return of money which is invested by it in Infrastructural and other National projects. The bills in India are issued on 91, 182 and 364-day basis due to an auction which is carried on dates pre-specified by the government. T-Bills are issued on their face value which means that the issue taker will get that face value on Maturity plus the interest rates that the bill covers. Different bills based on the risk associated with them, the market conditions and time of the project for which the money has been taken by the Government have different returns.

Also, a T-bill offers significant advantages over other derivatives in the form of traceability, transparency and the zero risk attached to it.

Now that the common understanding of a T-bill has been derived let us try and understand the difference between an FD and a T- Bill:

An FD is subjected to a fixed rate of return whereas an FD offers you varying interest rates depending on a number of factors mentioned above.

The tenure for investment in an FD is dependent on the investor whereas a similar discretion does not exist for a T-bill. The tenure is decided by the Government which in India is 91, 182 and 364 days.

FD can be held with a commercial bank, NBFC or any other financial institution whereas the instrument for parties are the issue taker and the Government.

FD allows you to invest in any amount you desire whereas a T-bill allows you to invest in multiples of 25,000.

T-bills are highly liquid in nature based on the duration for which they are issued. An FD offering similar rate of return will be issued for a much greater period.

The interest rates for an FD stay relatively constant compared to that of a T- Bill. At present, the interest rates for an FD vary between 3.5 to 7% depending on the duration of which an FD is invested. On the other hand, a T- Bill’s rate of return is 7.54%. However, the Rate has varied from something as high as 12.97% and as low as 3.10% in the past.

The FD Industry has always been a lucrative market for Investment but with the current era of knowledge and globalization, a T-Bill can serve as a good source of investment as well.